The Lightning Network (LN) is a "layer 2" payment protocol built on the Bitcoin blockchain and those of other cryptocurrencies. [1] It is intended to enable fast transactions among participating nodes (independently run members of the network) and has been proposed as a solution to the bitcoin scalability problem. [2] [3] It is a peer-to-peer system for making micropayments of cryptocurrency through a network of bidirectional payment channels, without delegating custody of funds. [4]
Joseph Poon and Thaddeus Dryja published a Lightning Network white paper in February 2015. [5] [ non-primary source needed ]
Lightning Labs launched the Lightning Network in 2018 with the goal of reducing the cost and time required for cryptocurrency transaction. Specifically, the bitcoin blockchain can only process around 7 transactions per second (compared Visa Inc., which can process around 24,000 transactions per second). Despite initial enthusiasm for the Lightning Network, reports on social media of failed transactions, security vulnerabilities, and over-complication lead to a decline in interest. [6]
On January 19, 2019, pseudonymous Twitter user hodlonaut began a game-like promotional test of the Lightning Network by sending 100,000 satoshis (0.001 bitcoin) to a trusted recipient where each recipient added 10,000 satoshis ($0.34 at the time) to send to the next trusted recipient. The "lightning torch" payment reached notable personalities including Twitter CEO Jack Dorsey, Litecoin Creator Charlie Lee, Lightning Labs CEO Elizabeth Stark, and Binance CEO "CZ" Changpeng Zhao, among others. [7] [8]
Andreas Antonopoulos calls the Lightning Network a second layer routing network. [9] The payment channels allow participants to transfer money to each other without having to make all their transactions public on the blockchain. [10] [11] This is secured by penalizing uncooperative participants. When opening a channel, participants must commit an amount on the blockchain (a funding transaction). [12] Time-based script extensions like CheckSequenceVerify and CheckLockTimeVerify make the penalties possible.
Transacting parties use the Lightning Network by opening a payment channel and transferring (committing) funds to the relevant layer-1 blockchain (e.g. Bitcoin) under a smart contract. The parties then make any number of off-chain Lightning Network transactions that update the tentative distribution of the channel's funds, without broadcasting to the blockchain. Whenever the parties have finished their transaction session, they close the payment channel, and the smart contract distributes the committed funds according to the transaction record. [13]
To initiate closing, one node first broadcasts the current state of the transaction record to the network, including a proposed settlement, a distribution of the committed funds. If both parties confirm the proposal, the funds are immediately paid on-chain. The other option is uncooperative closure, for example if one node has dropped from the network, or if it is broadcasting an incorrect (possibly fraudulent) transaction state. In this case settlement is delayed during a dispute period, when nodes may contest the proposal. If the second node broadcasts a more up-to-date timestamped distribution, including some transactions omitted by the first proposal, then all committed funds are transferred to the second node: this punitive breach remedy transaction thwarts attempts to defraud the other node by broadcasting out-of-date transactions.[ citation needed ]
Lightning operates under the BOLT (Basis of Lightning Technology) standard specification. [14] Its four major implementations are: Lightning Network Daemon, CoreLightning, Eclair, and Lightning Dev Kit. [15]
According to bitcoin advocate Andreas Antonopoulos, the Lightning Network claims to provide several advantages over on-chain transactions:
The Lightning Network is made up of bidirectional payment channels between two nodes which combined create smart contracts. If at any time either party drops the channel, the channel will close and be settled on the blockchain. [16] The on-chain transactions required to open and close lightning channels limit the scaleability of the lightning network. This can be mitigated if multiple users that trust each other share a lightning node. [17]
Lightning Network's dispute mechanism requires all users to watch the blockchain constantly for fraud. This vigilance can be outsourced to watchtower nodes, trusted providers who are paid to monitor for fraud. A period of 24 hours is allotted to create a bidirectional channel after receiving a request.[ citation needed ]
In the event that a bi-directional payment channel is no longer open between the transacting parties, the payment must be routed through network intermediaries via an onion routing technique similar to Tor. This requires that the sender and receiver of the payment have open channels with enough established peer nodes to find a path for the payment. [18]
Laszlo Hanyecz, famous for paying 10,000 BTC for two pizzas in 2010, bought two more pizzas in 2018 via Lightning Network for 0.00649 BTC. [19] In 2023, Lightning was also used by Robert F. Kennedy Jr.'s presidential campaign. [20]
Bitcoin is the first decentralized cryptocurrency. Nodes in the peer-to-peer bitcoin network verify transactions through cryptography and record them in a public distributed ledger, called a blockchain, without central oversight. Consensus between nodes is achieved using a computationally intensive process based on proof of work, called mining, that guarantees the security of the bitcoin blockchain. Mining consumes increasing quantities of electricity and has been criticized for its environmental effects.
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.
Litecoin is a decentralized peer-to-peer cryptocurrency and open-source software project released under the MIT/X11 license. Inspired by Bitcoin, Litecoin was among the earliest altcoins, starting in October 2011. In technical details, the Litecoin main chain shares a slightly modified Bitcoin codebase. The practical effects of those codebase differences are lower transaction fees, faster transaction confirmations, and faster mining difficulty retargeting. Due to its underlying similarities to Bitcoin, Litecoin has historically been referred to as the "silver to Bitcoin's gold." In 2022, Litecoin added optional privacy features via soft fork through the MWEB upgrade.
The Bitcoin protocol is the set of rules that govern the functioning of Bitcoin. Its key components and principles are: a peer-to-peer decentralized network with no central oversight; the blockchain technology, a public ledger that records all Bitcoin transactions; mining and proof of work, the process to create new bitcoins and verify transactions; and cryptographic security.
Ethereum is a decentralized blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. It is open-source software.
Bitcoin Core is free and open-source software that serves as a bitcoin node and provides a bitcoin wallet which fully verifies payments. It is considered to be bitcoin's reference implementation. Initially, the software was published by Satoshi Nakamoto under the name "Bitcoin", and later renamed to "Bitcoin Core" to distinguish it from the network. It is also known as the Satoshi client. Bitcoin Core includes a transaction verification engine and connects to the Bitcoin network as a full node.
A blockchain is a distributed ledger with growing lists of records (blocks) that are securely linked together via cryptographic hashes. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Since each block contains information about the previous block, they effectively form a chain, with each additional block linking to the ones before it. Consequently, blockchain transactions are irreversible in that, once they are recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.
Andreas M. Antonopoulos is a British-Greek Bitcoin advocate, tech entrepreneur, and author. He is a host on the Speaking of Bitcoin podcast and a teaching fellow for the M.Sc. Digital Currencies at the University of Nicosia.
Monero is a cryptocurrency which uses a blockchain with privacy-enhancing technologies to obfuscate transactions to achieve anonymity and fungibility. Observers cannot decipher addresses trading Monero, transaction amounts, address balances, or transaction histories.
Ethereum Classic is a blockchain-based distributed computing platform that offers smart contract (scripting) functionality. It is open source and supports a modified version of Nakamoto consensus via transaction-based state transitions executed on a public Ethereum Virtual Machine (EVM).
The Bitcoin scalability problem refers to the limited capability of the Bitcoin network to handle large amounts of transaction data on its platform in a short span of time. It is related to the fact that records in the Bitcoin blockchain are limited in size and frequency.
Bitcoin Cash is a cryptocurrency that is a fork of Bitcoin. Bitcoin Cash is a spin-off or altcoin that was created in 2017.
Segregated Witness, or SegWit, is the name used for an implemented soft fork change in the transaction format of Bitcoin.
A cryptocurrency wallet is a device, physical medium, program or an online service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often offers the functionality of encrypting and/or signing information. Signing can for example result in executing a smart contract, a cryptocurrency transaction, identification, or legally signing a 'document'.
In blockchain, a fork is defined variously as:
IOTA is an open-source distributed ledger and cryptocurrency designed for the Internet of things (IoT). It uses a directed acyclic graph to store transactions on its ledger, motivated by a potentially higher scalability over blockchain based distributed ledgers. IOTA does not use miners to validate transactions, instead, nodes that issue a new transaction on the network must approve two previous transactions. Transactions can therefore be issued without fees, facilitating microtransactions. The network currently achieves consensus through a coordinator node, operated by the IOTA Foundation. As the coordinator is a single point of failure, the network is currently centralized.
In cryptocurrencies, an unspent transaction output (UTXO) is a distinctive element in a subset of digital currency models. A UTXO represents a certain amount of cryptocurrency that has been authorized by a sender and is available to be spent by a recipient. The utilization of UTXOs in transaction processes is a key feature of many cryptocurrencies, but it primarily characterizes those implementing the UTXO model.
Hashgraph is a distributed ledger technology that has been described as an alternative to blockchains.The hashgraph technology is currently patented, is used by the public ledger Hedera, and there is a grant to implement the patent as a result of the Apache 2.0's Grant of Patent License so long as the implementation conforms to the terms of the Apache license. The native cryptocurrency of the Hedera Hashgraph system is HBAR.
A blockchain is a shared database that records transactions between two parties in an immutable ledger. Blockchain documents and confirms pseudonymous ownership of all transactions in a verifiable and sustainable way. After a transaction is validated and cryptographically verified by other participants or nodes in the network, it is made into a "block" on the blockchain. A block contains information about the time the transaction occurred, previous transactions, and details about the transaction. Once recorded as a block, transactions are ordered chronologically and cannot be altered. This technology rose to popularity after the creation of Bitcoin, the first application of blockchain technology, which has since catalyzed other cryptocurrencies and applications.
Colored Coins is an open-source protocol that allows users to represent and manipulate immutable digital resources on top of Bitcoin transactions. They are a class of methods for representing and maintaining real-world assets on the Bitcoin blockchain, which may be used to establish asset ownership. Colored coins are bitcoins with a mark on them that specifies what they may be used for. Colored coins are also considered the initial step toward NFTs built on top of the Bitcoin network.
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